Dorion Gray: Planning for long-term care part of retirement planning

Long-term care is a growing expense for many Americans, and preparing to pay for it is a key part of retirement planning.

1. What is long-term care? Long-term care refers to the ongoing services and support needed by people who have chronic health conditions or disabilities. There are three levels of long-term care.

Skilled care is generally around-the-clock care that’s given by professional health care providers such as nurses, therapists or aides under a doctor’s supervision. Intermediate care is also provided by professional health care providers but on a less frequent basis than skilled care. Custodial care is personal care that’s often given by family caregivers, nurses’ aides or home health workers who provide assistance with what are called “activities of daily living” such as bathing, eating and dressing. The most common type of long-term care is home-based care.

2. Why is it important to plan for long-term care? The odds of needing long-term care are high. About 40 percent of people will need long-term care at some point during their lifetimes after reaching age 65. About 14 percent of people age 71 and older have Alzheimer’s disease, a disorder that often leads to the need for nursing home care.

The cost of long-term care is rising. The average annual cost of a 1-year nursing home stay is $74,820 and in many states the cost is much higher. In the future, long-term care is likely to be even more expensive. If costs rise at just 3 percent a year (a conservative estimate), in 20 years, a 1-year nursing home stay will cost about $135,133.

3. Doesn’t Medicare pay for long-term care? Many people mistakenly believe that Medicare, the federal health insurance program for older Americans, will pay for long-term care. But Medicare provides only limited coverage for long-term care services such as skilled nursing care or physical therapy. Medicaid, which is often confused with Medicare, is the joint federal-state program that two-thirds of nursing home residents currently rely on to pay some of their long-term care expenses. But to qualify for Medicaid, you must have limited income and assets.

4. Can’t I pay for care out of pocket? The major advantage to using income, savings, investments, and assets to pay for long-term care is that you have the most control over where and how you receive care. But because the cost is high, you may have trouble affording extended care if you need it.

5. Should I buy long-term care insurance? LTC insurance protects you against a specific financial risk. Your financial professional or insurance agent can help you compare policies and answer any questions you may have.

Send financial questions you wish to have answered in this column to Dorion-Gray Retirement Planning Inc. Fax them to 815-455-4989, or email paula@doriongray.com.